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Under-the-table deals are risky to buyer and seller, court warns

You may want to think twice before trying to cheat the taxman

If you’re thinking about making a purchase with cash to save on the taxes, you may want to think twice, warns a provincial court judge. These schemes amount to revenue fraud, and both the buyer and seller can be at risk.

Photograph by: tyler olson
, Getty Images/iStockphoto

In a case the court said was common, Judge Stephen Harrison dismissed the small claims suit between the owners of DSA Auto Repairs in Merritt and customer Charles Poore over an off-the-books sale to avoid the HST on a used van.

After a two-day hearing in December, Harrison ruled both sides were out of luck for trying to cheat the taxman.

These no-tax-if-you-pay-cash schemes amount to revenue fraud, he said, and because both parties entered into an illegal contract, neither had a legitimate claim.

“Thus, in the case of an illegal contract for the sale of goods, the buyer, even though he has paid the price, cannot sue for non-delivery; the seller who has made delivery cannot recover the price,” Harrison added.

Poore launched the litigation, saying Dillon Aimola, his partner and dad Sergio Aimola and their garage, DSA, failed to provide a used Dodge Caravan with a rebuilt motor for $3,200.

Instead, he claimed they provided one with a used engine that quickly gave up the ghost.

Poore demanded the return of his money — $5,320.44 — including his $2,000 down payment, $3,149.24 for a replacement motor and transmission repairs performed at another garage plus search and filing fees.

The Aimolas countersued, asking for $1,200, the unpaid balance on the vehicle.

The problems began when Poore, a fishing supplies salesman, took his 1998 Dodge Caravan in for mechanical work on May 3, 2012. A few days later, the transmission ran out of fluid.

Returning the vehicle, he was told by Dillon Aimola that a gasket was improperly installed, damaging the transmission.

It was beyond repair.

Nevertheless, Aimola said another customer had given him a similar ’98 Dodge Grand Caravan with a blown motor that Poore could have after a replacement motor was installed. Aimola would provide a motor vehicle transfer tax form declaring the van to be a gift to Poole made on April 16, 2012 for no value or consideration, which meant he would pay no tax.

“Pay me the cash, I’ll save you the tax,” he said.

Poore liked the deal, paid $2,000 in advance and promised to pay another $1,200 when the work was done.

He received a receipt dated June 4, 2012 typed on plain paper, not the standard DSA Auto Repairs business invoice or receipt. In fact, it contained no reference to DSA at all.

The receipt made no mention of a replacement motor. Aimola denied the sale was structured to evade tax payments but the judge dismissed his excuses.

Poore testified that he saw that a used, not a rebuilt, motor was installed in the van but said nothing about it, determined that he would not pay the $1,200 balance owed.

Aimola claimed he never agreed to install a rebuilt motor because they were too expensive to be justified in most vehicles.

Eventually, Poore received the replacement van but on a business trip to Prince George and Fort. St. John it burned oil excessively and ran out of transmission fluid.

Poore drove back to Merritt and told Aimola: “You owe me a new motor and transmission.”

Aimola replied: “I’ve got 15 jobs ahead of you, so you’ll have to get in line.”

Without further discussion, Poore took the vehicle to Merritt Auto Wrecking.

A mechanic from there, Adam McDonald, testified he worked on the van for two days and billed just over $3,100.

McDonald found the engine worn, the gaskets in poor shape, the spark plugs oil-fouled and the air filter oil-soaked on one side. It was old damage, he said, and the standard of work was not what he would expect to see from a qualified mechanic.

“I am satisfied that the contract entered into between (Poore) and (Dillon) Aimola ... included an understanding that the 12% harmonized sales tax ordinarily payable by the claimant would be avoided, or more accurately, evaded,” Harrison concluded.

“I’m satisfied that the contract between the parties was an illegal contract ... Both parties were engaged in the conduct and both share the responsibility and the consequences: they are in pair delicto.”

The judge reiterated previous decisions — “The law is clear that a court will not assist a party in enforcing an illegal contract.”

If you’re thinking about making a purchase with cash to save on the taxes, you may want to think twice, warns a provincial court judge. These schemes amount to revenue fraud, and both the buyer and seller can be at risk.

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